China Pledges $35 Billion to Latin America

14 January 2015

With relatively little fanfare, China has taken over the inside lane of economic development in Latin America with an ambitious 10-year regional investment plan on the scale of the Marshall Plan. China’s support for a $250 billion fund for largely infrastructure investments in Latin America was announced by President Xi Jinping at a summit meeting in Beijing last week of the Community of Latin American and Caribbean States (CELAC), which represents 33 countries. China has already pledged $35 billion for the fund, which will also require financial inputs from multilateral development banks and contributions from host countries. To coordinate this, CELAC and China will create a forum to design the partnership with the goal of unifying Latin America as a regional economy.

Beijing’s aim is to double the level of trade between China and Latin America from the current level of $300 billion reached in 2014 when China become the second-largest market for Latin American exports, mainly commodities like petroleum, soybeans, iron, and copper. This trade is the basis for a mutual dependence that is evolving into cooperation in development investment. China has the capital to invest and wants to secure future supplies of food and energy as its society becomes more urbanized and consumers seek better quality products, such as wines and seafood from Chile and Peru or beef and poultry from Brazil. The possibilities are enormous if Latin America can achieve efficient, cost-competitive production, now hobbled by inadequate infrastructure in transportation and energy. The Chinese have advanced experience in railroad construction and are eager to become involved in new oil and gas fields in Brazil, Argentina, Ecuador, and Venezuela, all of which have received large financial advances from China in exchange for future oil.

This Sino-Latin reciprocity is supported enthusiastically by inter-American regional institutions, like the Inter-American Development Bank and the United Nations Economic Commission for Latin America and the Caribbean, that were created with US financial backing but are now largely bureaucratic agencies without an uplifting role in the region, largely because Latin America is deeply divided over how to achieve common goals. Venezuela and Argentina, champions of the anti-American left, are both in deep financial trouble with declining economies and political insecurity. Colombia, Peru, Chile, and Mexico are on another tack with stable economic policies and a clear commitment to free market principles. Brazil has been on the fence under President Dilma Rousseff, as reduced private investment and increased inflation have lead to a slowdown in economic growth. As Rousseff begins her second term, there are indications that Brazil may return to an orthodox fiscal discipline approach to governing that could enhance the country’s economic prospects.

It is not yet clear how China’s pivot to Latin America is going to play out in this divided political situation. It is already clear that China’s financial support can be critical for the permanence of the Venezuelan regime, and China is also providing financial aid to Cuba, which depends on subsidized Venezuelan oil for its energy needs. The issue of restoration of political freedoms and respect for human rights in both Cuba and Venezuela are closely linked, so financial support by China to these countries necessarily involves a political choice. China has not been a practitioner of political freedom or defender of human rights, but as its economic influence advances in the western hemisphere, where democratic governments prevail, these freedoms can’t be ignored. It is important that these American values be kept relevant by the United States when dealing with China on Latin America’s economic development.

With a powerful new player like China now in what was Uncle Sam’s backyard, this is a challenge for the Obama administration. The Chinese are aware of the problems raised by their geopolitical advance into Latin America. But it is not clear whether the Obama administration is ready and able to mobilize a hemispheric commitment to democratic values that will deter China and its Latin American partners, like Venezuela and Argentina, from imposing their authoritarian policies in the region. For the time being, Zhu Qingqiao, the senior Chinese official for Latin America and architect of the CELAC-China forum, had tranquilizing words for Washington: “Relations of China and the United States with Latin America and the Caribbean are totally compatible and favor joint prosperity and progress, not only for the region but for the whole world.” Backed by billions of dollars in Chinese investments and trade opportunities, that is an attractive prospect for Latin America.